Thomson Reuters has published a white paper detailing the challenge for law enforcement with digital currencies and how they can be used for money laundering. The paper is mainly an educational article and serves as an introduction to the problem of money laundering and digital currencies.
The paper starts by quoting the Financial Action Task Force (FATF), which is an international group involving 36 countries that money laundering is at the level of between two and five percent of global GDP, i.e. $1.38 trillion to $3.45 trillion. This is a rough estimate as, by the definition of the problem, much money laundering goes undetected.
The white paper also details the history of legal action against digital currency handlers. For example, the demand by the Department of Homeland Security (DHS) of Dwolla, a mobile payment service, to cease exchanging funds with Mt. Gox, and the closure of Liberty Reserve.
The white paper also points out that criminals are not only using the relatively new digital currencies to transfer funds. The virtual currencies of online games, such as World of Warcraft, have been used to buy valuable in-game items that have then been auctioned off to other players.
Other methods for money laundering include prepaid credit or gift cards. To tackle this, it says that FinCEN is exploring ways to regulate their use, such as requiring "travellers to declare prepaid cards in excess of $10,000 to customs officials" (according to Personal Finance Digest magazine, April 4, 2013).
It is also reported how law enforcement personnel are struggling to keep up with the bewildering array of technology available to move money around, including but not limited to bitcoin. Thomson Reuters took a survey of fraud examiners and found that only 10% of those surveyed have worked on a fraud case involving digital currencies, and 61% feel that digital currencies will change the way they conduct their investigations.
The paper also quotes the Wall Street Journal from March 2013 when it was said that FinCEN would regulate firms that issue or exchange digital currencies. However, as we reported recently, firms are still having to ask FinCEN for guidance and clarification as those regulations have not yet been forthcoming.
In terms of tackling money laundering, the paper recommends educating law enforcement and pursuing increased pattern recognition for suspicious transactions.
It also points out how hacktivists are a "wild card" element. Groups such as Anonymous have a history of both battling criminals and thwarting law enforcement to protect digital civil liberties.
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